Guest Column
| January 6, 2017

Important Considerations When Implementing Population Health

Population health isn’t a new concept, but it’s one that has taken on greater prominence as a result of the Affordable Care Act (ACA) and as accountable care organizations (ACOs) have gained traction. ACOs demand quality and outcomes measures from population health.

As population health initiatives rise to the forefront, so too does the need to establish comprehensive and tangible roadmaps to implement population health, including measures of success. Population health is the stratification of patients based on clinical needs so the appropriate resources can be provided. The Advisory Board’s Patient Risk Triangle cites four categories of population risks including:

high-cost patients, which represent approximately 5 percent of the population and are characterized by patients that have poorly controlled chronic disease and multiple comorbidities

rising risk patients, which represents roughly 20 percent of the population and include patients with two chronic diseases

at-risk patients, which represent approximately 40 percent of the population and may be pre-diabetic or present with other chronic disease symptoms

healthy patients, which represent approximately 35 percent of the population

Key Components For Population Health
Organizations looking to launch a population health program will need to consider which model of care best supports their population goals, along with the segmentation and definition of the population they will be targeting, implementation of appropriate technology and interoperability, the need for analytics and reporting tools, how to measure and report quality and outcomes, and how to achieve consumer and provider engagement to help ensure high quality, cost effective outcomes.

Providers transitioning from volume to value require more integration along the care continuum. Since care transformation is at the heart of healthcare reform, providers must transform their care delivery models in order to be sustainable/viable in the long-term, respond to new payment models (pay-for-performance vs. fee-for-service), improve quality, outcomes and value (triple aim), and reduce costs.

Conduct An ACO Financial Performance Evaluation
As ACOs seek to undertake a population health initiative, they need to ensure their financial infrastructure can support such a program. Following are some key considerations in evaluating an ACO’s financial performance:

How big is the market opportunity? This requires evaluation of the number of covered lives across a range of product lines including commercial managed care, commercial narrow network, Medicare Shared Savings, Medicare Advantage, and Medicaid Managed Care.

What market scenarios should be considered? For example, growth in lines of business/ attributed lives, improved steerage by cost category with resulting steerage costs, shared savings on contracts or resulting shared losses on contracts, reductions in utilization, and other scenarios should be explored.

What is the investment required for success and financial benefit? It is important to look at the cost of a multi-year investment and contribution margin, and projected IRR across subset of program growth scenarios.

ACO Model Requirements
There are five major drivers defined as the basis for a series of scenarios to test in an ACO financial pro-forma projections model. As you begin your due diligence, evaluate the following scenarios and data requirements:

ACO covered lives: Determine the target service area, size of potential ACO covered lives population, and which lines of business need to be considered (i.e., commercial? Medicare?). Then determine which service areas will you include? How many lives as determined by commercial/employer groups? And ACO uptake/participation scenarios for a three- to five-year period.

Share of spend and steerage factors: What is the percent of market share by medical cost category (IP, OP-ER, OP, Professional)? How does market share change over time by line of business? What is the degree of lives erosion if status quo is maintained?

Utilization factors: What is the overall utilization efficiency opportunity across medical cost category? How much year over year utilization savings is achievable?

Reimbursement: What is the likely annual rate of shift from FFS to alternative, risk-based payment models? What are unit discounts by medical cost category? What are shared savings assumptions? What is current state of performance by line of business? Look at status quo reimbursement inflation, shared savings scenarios/assumptions/thresholds, inflation trend on annual cost of care, and contribution margin by medical cost category (net revenues – direct costs).

Program costs: What is the required program investment to support infrastructure, start-up cost, and ongoing operational costs (i.e. resources, administrative expenses, etc.)? Look at historical data on salaries/wages by function, supplies, admin, purchased services, other expenses, and estimated working capital for startup.

How Do You Get There?
Once you’ve completed your financial due diligence, you can begin to implement your population health initiative by:

contracting for a critical mass (population) in your region

understanding the key role new technology plays in automation, connectivity, analytics and decision support

And finally, be sure to take a holistic approach to value based transformation. Ensure outcomes take quality, access, cost, provider satisfaction, risk adjustment, and growth into consideration. Also be sure to:

stratify your provider network and identify providers who are willing and able to move toward value based purchasing

develop appropriate programs that support and align with provider needs and regulatory agencies

encourage member and provider alignment through integrated care coordination and shared goals and decision making

Despite the many unknowns with respect to the ACA and the changing healthcare landscape, population health programs are expected to remain an essential model for improving the quality of care and reducing costs, both of which are critical for transforming the healthcare industry in the long run.

About the Authors
Susan Kanvik and Karen Curtis are Healthcare Senior Directors for Point B Management Consultants.

Kanvik has a 30 year plus track record in the healthcare industry with experience ranging from healthcare informatics, health promotion to the application of retail principles in healthcare.

Curtis has more than two decades' experience working in the healthcare industry with expertise in leading complex, strategic business initiatives for hospitals/health systems and physician organizations. Her work has extended across the planning and creation of new programs and services, operational improvements, and implementation of new clinical information systems and processes.